U.S. Oil Potential Is High, but the Future Is Uncertain

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Economists at the Organization of Petroleum Exporting Countries (OPEC) in their latest monthly market report expressed caution about the future for shale oil production growth, caution that was put on display in the latest upstream earnings reports.

The economists said in their monthly report for January that total U.S. crude oil production should show an average for 2022 of 11.82 million barrels per day (BBL/d).

Forecasts remained relatively consistent through 2022. The U.S. Energy Information Administration's (EIA) forecast from January 2022 put the expected average last year at 11.8 million BBL/d, and that forecast still holds. This year, production should reach 12.4 million BBL/d, according to the EIA, which would be a record should the forecast prove accurate.

The current record is 12.3 million BBL/d, set in 2019. There's an emerging thread, however, that suggests U.S. crude oil production is reaching its plateau.

One of the first places that would show up would be in the upstream side of the sector. There, the future seems mixed.

Oilfield services company SLB (NYSE:SLB) (Houston, Texas) said last week that there was a "compelling" case for stronger growth this year. "In North America, U.S. land rig count remains at robust levels, although the pace of growth is moderating."

OPEC economists, for their part, said U.S. shale production faced headwinds during the latter months of 2022, but they were relatively still positive about the future.

"Higher drilling activities and fewer supply chain/logistical issues in the prolific Permian, Eagle Ford and Bakken shale sites are assumed for 2023," OPEC said.

It may be a case for the latter. Respondents to a fourth-quarter survey from the Federal Reserve Bank of Dallas were no less convincing.

"Labor is an issue that is affecting our firm," one respondent said, though another said that "leasing has increased and new drilling has increased."

And so we're left with Baker Hughes Company (NASDAQ:BKR) (Houston, Texas). Shares were up early Monday on its earnings, though Chief Executive Officer Lorenzo Simonelli was clear the storm clouds may be brewing on the horizon. Challenges this year run from inflationary pressures to lingering supply-side shortages. "With years of under-investment now being amplified by recent geopolitical factors, global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecasted future demand," he said.

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